A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment, indicate the effect on the portion allocated to interest expense and the portion allocated to principal. Portion Allocated Portion Allocated
To Interest Expense to Payment of Principal
A) Increases Increases
B) Increases Decreases
C) Decreases Decreases
D) Decreases Increases

Question

Quizplus · Accepted Answer

As the loan is paid down, the interest portion of each payment decreases because it is calculated on a smaller remaining principal balance, while the portion allocated to the principal increases.

A Mortgage Note Payable with a Fixed Interest Rate Requires